Choosing Bonds Over Stocks
Tuesday, November 28th, 2006
When do you invest in bonds? What makes it a better alternative for you as compared to stocks or other options like savings and CD’s?
Typically, bonds make the most sense when
- You need a periodic income from your investments
- You’re looking at protecting your capital rather than growth
- You need specific factors like tax-free income
On account of these, bonds make much more sense for a late-stage investor; someone who has a substantial networth, expects to retire from active earning soon and needs to substitute another income stream, and has provided for most requirements and hence doesn’t look for aggressive growth.
For a young investor with a small capital, stocks make much more sense; typically, these grow much faster. Especially if you’re investing your IRA funds which are tax-protected, it makes sense to aim for fast growth to meet anticipated future requirements.
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